UK banks had already built up very strong liquidity buffers over recent years in response to local regulatory pressure and, as such, were well positioned to meet the original requirements. Indeed their position had become so strong that the UK regulator recently relaxed its own liquidity requirements for UK banks in a bid to boost lending. As such, we think the extended timeframe will not have a significant incremental impact on them. However, the change in asset eligibility should allow UK banks to hold more higher margin liquid assets, thereby bolstering profitability and return on equity.

Overall the relaxation of Basel III liquidity rules will be helpful to UK banks in terms of their ability to lend and their profit generation capability, in our view.

So Barclays was 10.5p better at 287.2p, the biggest riser in the leading index, while Lloyds Banking Group was lifted 0.64p to 50.5p and Royal Bank of Scotland rose 0.1p to 333.9p.

Overall though, after touching a near two year high last week, the FTSE 100 finished 25.26 points lower at 6064.58. Angus Campbell, head of market analysis at Capital Spreads, said:

Banking stocks were in demand today following the postponement of the Basel liquidity rules despite a small sell off in the wider market. It is certainly a sigh of relief for the banks who've been worrying for years about the impending implementation of stricter capital requirements and is actually quite encouraging for the wider economy as it should improve the flow of credit to businesses and consumers.

But with many investors back from their long festive holiday, it was the turn of the bears to bring a little reality check to what has so far been a very strong start to the year for equity markets.

Analyst downgrades were responsible for a number of fallers. National Grid led the FTSE fallers, down 17p to 694p as Deutsche Bank repeated its sell recommendation although it raised its target price from 580p to 600p:

We believe National Grid will be required to give up part of its dividend or growth expectations in 2013.

Commodity companies across the board came under pressure, with Randgold Resources down 100p to £58.75 as precious metal prices fell and Davy Research cut its price target on the company from £83.40 to £82.30.

Elsewhere Rolls-Royce lost 13.5p to 904.5p after further corruption allegations while Centrica closed 7.1p lower at 333.9p after reports that the managing director of its British Gas subsidiary was to step down.

But British American Tobacco added 19.5p to £31.94 after Deutsche Bank moved from hold to buy, while the bank was also positive on Imperial Tobacco, up 11p to £24.54. It said:

Though BAT and Imperial made good underlying progress during 2012, the stocks came under pressure from an increased investor focus on regulatory matters. Now that plain packaging is a fact in Australia, and the main elements of proposed EU changes are known, we think important overhangs should clear. Imperial Tobacco, where we see signs that an increased focus on organic growth is starting to work, remains our top pick. We also upgrade our recommendation on BAT to buy (with a price target of £33) as we consider the current price an solid entry point to a high-quality stock.

Morrisons lost 0.8p to 256.1p as it reported a 2.5% fall in Christmas sales, but managed to avoid a feared profits warning.

ITV ended 1.1p higher at 109.6p after Liberum Capital lifted its share price target from 145p to 155p and its earnings forecast for this year and next by around 5% and 8% respectively. Analyst Ian Whittaker said:

Significant 2013 earnings growth [is] already in the bag. Even with no TV advertising growth and £20m of extra investments, ITV should see an estimated £80m uplift in adjusted pretax profit growth in 2013 from further efficiencies, savings in sports rights and interest costs already secured and higher profit contribution from non-TV advertising sources.

ITV should benefit from the Group M/Channel 4 dispute. WPP's Group M unit (which is the umbrella unit for all of WPP's media buying) has pulled virtually all of its direct advertising from ITV's main rival Channel 4 over a dispute over pricing. As ITV1 (and ITV Family in general) is Channel 4's main rival for mass market audiences, we expect ITV to be a major beneficiary of the dispute. To put in context, Group M spends an estimated £300m annually with Channel 4 sales.

Among the mid-caps Bumi Resources, the Indonesian coal miner in the middle of an internecine battle, bounced 19.8p to 288.5p despite saying weak prices had forced it to cut back spending plans. It said Berau, which will be its main subsidiary once the founding Bakrie family exits the business, was on track to reach 21m tonnes in 2012 with a 30m tonne target in the medium term. Meanwhile financier Nat Rothschild continued his dispute with the Bakrie family by calling for a general meeting to remove 12 of the 14 current directors. Bumi said it had no obligation to call such a meeting but would do so to allow shareholders to make their own minds up.

Engineering group Renishaw, a supplier to Apple, fell 72p to £19.50 after UBS moved its recommendation from buy to neutral. The bank said:

We think Renishaw's machine tools have been a beneficiary of Apple's latest product developments, specifically the re-modelled iPhone and iPad. Equipping Apple with the required tooling has been a boon for Renishaw but this activity is lumpy and we suspect Renishaw enters a 'quiet' period between product cycles. This may make it difficult to repeat the 15% plus upgrades seen in 2012 in our view.

Having been the best performer in UK capital goods in 2012 we think Renishaw's shares may struggle to make further ground without clarity on its end-markets. We find judging momentum at Renishaw more difficult than normal. On balance, we think the absence of further electronics project orders in the near term will outweigh the potential broad-based improvement in industrial demand that may be seen elsewhere in sector. We downgrade to neutral but this is one to revisit later.

Soft drinks group Nichols, best known as the maker of Vimto, bubbled up 33p to 858p after it said full year sales had risen 9% to £108m. The company, which is also behind Sunkist and Panda, said profits and earnings for the year would be ahead of market expectations. Investec raised its target price from 725p to 800p, saying:

The group has continued to drive distribution of the core Vimto brand, as well as successfully launch a range of WeightWatchers soft drinks which has added around £2m to UK revenue.

Investec said the company's shares were likely to have benefited from takeover speculation following the recent merger announcement from rivals Britvic and AG Barr.

Finally oil and gas company Ruspetro slumped 15.5p to 68p after a late update on Friday, after the market had closed. The company warned of production delays due to unexpected technical problems at its West Siberian sites.